The ETF Portfolio Strategist - Saturday, July 10

This year’s rally in US real estate investment trusts (REITs) was looking tired recently, but it turned out to be a pause that refreshes.

Vanguard US Real State (VNQ) roared higher by 2.5% in this week’s trading through Friday’s close (July 9), lifting the fund to a record high. The gain marks the strongest increase, by far, for our 16-fund global opportunity set this week, as shown in the table above.

The catalyst? Perhaps it was the ongoing slide in Treasury yields, which casts a favorable light on REITs relatively high payout rates. (VNQ’s trailing 12-month yield: 2.34% vs. 1.37% for a 10-year Treasury Note.)

Whatever the reason, the allure of real estate spilled across borders. The second-strongest performer for our opportunity set — Vanguard Global ex-US Real Estate (VNQI), which rallied 1.3% this week.

US stocks swooned earlier in the week, but by Friday the bullish trend returned. Vanguard Total US Stock Market (VTI) continued to push higher, ending Friday’s session at a new high.

The small-cap slice of the US equities market, however, continues to trade in a range. The iShares Core S&P Small-Cap ETF (IJR) slipped 0.8% for the week.

This week’s big losers: foreign stocks in Asia ex-Japan and Latin America. The iShares Latin America 40 ETF (ILF) tumbled a hefty 3.6%, marking the biggest setback.

The second-worst performer this week: iShares MSCI All Country Asia ex-Japan (AAXJ), which retreated 2.1%. A headwind for the fund is China’s expanding crackdown on portions of its formerly high-flying tech industry. China represents about 40% of AAXJ’s portfolio and so the ETF is vulnerable to ongoing repercussions triggered by Beijing’s regulatory changes.

In the US Treasury market, yields continued to slide, although Friday witnessed a sizable rebound after consecutive declines in the previous four trading sessions, based on the benchmark 10-year Treasury rate.

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For details on all the strategy rules and risk metrics, see this summary.

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